The U.S. Department of Justice (DOJ) kicked off the week strong with two False Claims Act settlements, both of which involved qui tam, or whistleblower, lawsuits. Both cases are from the healthcare and pharmaceutical field.
The qui tam provisions of the False Claims Act enables private citizens to file lawsuits on behalf of the government if they know of an individual or company defrauding the government. Qui tam whistleblowers are eligible to receive between 15 and 30% of the government’s recovery, if one occurs.
Mallinckrodt ARD LLC
On March 7, the DOJ announced that Mallinckrodt ARD LLC, a pharmaceutical company, will pay $260 million to resolve allegations that it violated the False Claims Act by “underpaying Medicaid rebates” for one of its drugs and “using a foundation as a conduit to pay illegal co-pay subsidies in violation of the Anti-Kickback Statute.” The U.S. Bankruptcy Court for the District of Delaware approved the settlement on March 2.
The government alleged on March 3, 2020, that Mallinckrodt “knowingly underpaid rebates due” for its drug H.P. Acthar Gel (Acthar) from 2013 until 2020. The press release explains that the Medicaid Drug Rebate Program requires drug manufacturers “to pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs.” Drug manufacturers are to pay “inflation-based rebates for drugs, which are designed to insulate the Medicaid program from drug price increases outpacing inflation.” The rebates are calculated by comparisons between the drug’s Base Date Average Manufacturer Price, “which is the drug’s price on the date that the ‘dosage form and strength’ of the drug was first marketed or 1990, whichever is later, to its current price.”
In its complaint, the government claimed that “Mallinckrodt and its predecessor Questcor began paying rebates for Acthar in 2013 as if Acthar was a ‘new drug’ first marketed in 2013, rather than a drug that had been approved since 1952.” The companies allegedly employing this practice meant that they “ignored all pre-2013 price increases when calculating and paying Medicaid rebates for Acthar from 2013 until 2020.”
“In particular, the government alleged that Acthar’s price had already risen to over $28,000 per vial by 2013, and therefore ignoring all pre-2013 price increases for Medicaid rebate purposes significantly lowered Medicaid rebate payments for Acthar,” the press release states. As part of the settlement, “Mallinckrodt admitted that Acthar was not a new drug as of 2013 but rather was approved by the U.S. Food and Drug Administration and marketed prior to 1990, and agreed to correct Acthar’s base date AMP and that it will not change the date in the future.”
The government filed a complaint on June 5, 2019 alleging that “Mallinckrodt knowingly used a foundation as a conduit to pay illegal kickbacks in the form of copay subsidies for Acthar.” Allegedly, the company did this so that “it could market the drug as ‘free’ to doctors and patients while increasing its price.” The DOJ reports that Mallinckrodt “allegedly paid these illegal subsidies through three funds that Mallinckrodt had a foundation set up to induce Medicare-reimbursed purchases of Acthar, and used the subsidies to counteract doctor and patient concerns about the drug’s high cost.” As the Federal Anti-Kickback Statute establishes, pharmaceutical companies cannot offer or pay, “directly or indirectly, any remuneration — which includes money or any other thing of value — to induce Medicare patients to purchase the company’s drugs. This prohibition extends to the payment of patients’ copay obligations.”
Mallinckrodt will pay “$234.7 million to resolve the Medicaid rebate allegations” and “$26.3 million to resolve the kickback allegations.” For the $234.7 million total, the company will pay $123.6 million to the U.S. and $110.1 million “to the participating Medicaid States, pursuant to the terms of separate settlement agreements Mallinckrodt has or will enter into with those states.”
“In connection with the settlement, Mallinckrodt also entered a five-year corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG).” The agreement includes “unique drug price transparency provisions and monitoring provisions focused on Medicaid rebate and patient assistance program activities.”
Additionally, the company will have “to establish a risk assessment program, implement executive recoupment provisions, and obtain compliance related certifications from company executives and board members” as part of the CIA.
The settlement resolves allegations that were originally brought under the False Claims Act’s qui tam provisions. The False Claims Act allows the U.S. government to intervene in qui tam cases, which occurred in these cases. “The Strunck whistleblowers will receive approximately $4.9 million from the recovery for the kickback allegations and the Landolt whistleblower will receive approximately $24.7 million from the federal recovery for the Medicaid rebate allegations,” the press release states.
Comprehensive Health Services LLC
The DOJ announced on March 8 that Florida-based Comprehensive Health Services LLC (CHS) will pay $930,000 to resolve allegations of violating the False Claims Act. Allegedly, CHS falsely represented “that it complied with contract requirements relating to the provision of medical services at State Department and Air Force facilities in Iraq and Afghanistan” to the State Department and the Air Force.
CHS provides global medical services and was “contracted to provide medical support services at government-run facilities in Iraq and Afghanistan.” According to the press release, under one contract CHS “submitted claims to the State Department for the cost of a secure electronic medical record (EMR) system to store all patients’ medical records, including the confidential identifying information of United States service members, diplomats, officials and contractors working and receiving medical care in Iraq.”
The government alleges that between 2012 and 2019, “CHS failed to disclose to the State Department that it had not consistently stored patients’ medical records on a secure EMR system.” Instead, “[w]hen CHS staff scanned medical records for the EMR system, CHS staff saved and left scanned copies of some records on an internal network drive, which was accessible to non-clinical staff. Even after staff raised concerns about the privacy of protected medical information, CHS did not take adequate steps to store the information exclusively on the EMR system.”
CHS’ contracts with the State Department and Air Force also required the company to provide U.S. Food and Drug Administration (FDA) or European Medicines Agency (EMA)-approved medical supplies, “including controlled substances.” The supplies also had to be “manufactured in accordance with federal quality standards.”
The government alleged that between 2012 and 2019, “CHS falsely represented to the State Department and Air Force that certain substances provided under those contracts were approved by the FDA or EMA.” According to the press release, CHS lacked a Drug Enforcement Agency license necessary for exporting controlled substances from the United States to Iraq. CHS obtained controlled substances by having CHS physicians based in Florida send letters requesting that a South African physician prescribe the controlled substances. A South African shipping company then received controlled substances that were not approved by the FDA or EMA and sent them to CHS in Iraq, where CHS supplied the unapproved controlled substances to patients under the State Department and Air Force contracts.”
The civil settlement includes the resolution of claims brought under the qui tam provisions of the False Claims Act. The press release doesn’t provide any other information about whistleblower(s) in the case.
The press release highlights that this is the first False Claims Act resolution since the DOJ established the Civil Cyber-Fraud Initiative.
The False Claims Act in 2021
The DOJ’s recently released data from FY 2021 about the False Claims Act described healthcare fraud as “once again the leading source of the department’s False Claims Act settlements and judgements.” Read a breakdown of notable False Claims Act cases from 2021 here.
In FY 2021, whistleblowers helped the DOJ recover $1.6 billion in settlements; however, “the DOJ only paid out $237 million to whistleblowers, the lowest single-year total since FY 2008,” WNN reports. Whistleblower attorney Stephen M. Kohn said that the FY 2021 totals “reflect a troubling trend in recent years…The DOJ has begun to treat whistleblowers like second-class citizens. It routinely throws out strong whistleblower cases without just cause. While the SEC and CFTC are making great strides forward with their whistleblower programs, the Justice Department is in reverse.” Read the full article about the False Claims Act in FY 2021 here.
Read the Mallinckrodt press release here.
